Industrial Organization Extended Example
As an example of the use of this equilibrium concept we consider the competition between firms which had invested heavily into fixed costs and are dominant producers in an industry, forming an oligopoly. The players are taken to be committed to levels of production capacity in the short run, and the strategies describe their decisions in setting prices. The firms' objectives are modeled as maximizing the present discounted value of profits.
Read more about this topic: Markov Perfect Equilibrium
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